(Bloomberg) – SoftBank Group Corp. reported a record profit in its Vision Fund because a rising stock market increased the value of its portfolio companies, but founder Masayoshi Son wiped out a significant portion of the profits with its controversial derivatives trading.
The Vision Fund posted a profit of 844.1 billion yen ($ 8 billion) in the December quarter, surpassing the record numbers set just a quarter earlier. A global rally in technology stocks has boosted the value of SoftBank’s stake in listed companies such as Uber Technologies Inc. increased and paved the way for initial public offerings such as by DoorDash Inc.
The generally expected profit is offset by Son’s decision last year to start trading stocks and options. SoftBank posted a loss of 285.3 billion yen in derivatives during the period. This resulted in an overall loss in the asset management arm of 113.5 billion yen, compared to 85.2 billion yen in the previous three months.
“The excellent performance of the Vision Fund over the past few quarters still covers the losses on options,” said Anthea Lai, an analyst at Bloomberg Intelligence. “SoftBank can claim that the derivatives were for hedging purposes, but Son’s trading certainly does not look good yet.”
In a presentation to investors after the results, Son focused on its successes. He reiterated his argument that SoftBank is like a goose laying golden eggs, from Alibaba Group Holding Ltd. and Yahoo! two decades ago to companies like Uber and DoorDash more recently. About 15 companies have been issued by the Vision Fund so far, he said: “Since the Vision Fund was started, the number of golden eggs has been accelerating.” “We are finally in the harvest phase.”
He said Vision Fund 1 and Vision Fund 2 had invested in a total of 131 companies. In the case of DoorDash, SoftBank has invested about $ 680 million in an interest that is now worth about $ 9 billion, while it is worth $ 7.7 billion in Uber $ 11.3 billion.
The company in Tokyo had a net income of 1.17 trillion yen in the December period and did not disclose its operating profit figures. At least six more portfolio companies are planning IPOs this year.
“There’s a lot of liquidity out there and investors are particularly partial towards technology stocks,” said Justin Tang, head of Asian research at United First Partners in Singapore. ‘At some point the exhaustion of the stock market is coming, but it does not seem like we are still there. For now, the opportunity window is open for SoftBank. ”
After shares fell in March with the outbreak of the coronavirus, SoftBank announced plans to sell 4.5 billion yen of assets to reduce debt and fund buybacks. The sale has part of its stake in Alibaba, T-Mobile US Inc. and SoftBank Corp., the Japanese telecommunications unit. SoftBank has also announced an agreement to launch its disk designer Arm Ltd. to sell $ 40 billion to Nvidia Corp.
At the end of the quarter, SoftBank had a total of $ 22 billion in “highly liquid listed shares”, including a $ 7.39 billion investment in Amazon.com Inc., $ 3.28 billion in Facebook Inc. and $ 1.38 billion in Alphabet Inc. The business is managed by its asset management subsidiary SB Northstar, where Son personally owns a 33% stake.
The investments were accompanied by derivative instruments that strengthened the exposure, but SoftBank scrapped its options strategy amid a setback from investors. The fair value of SoftBank’s futures and options positions amounted to just over $ 1 billion at the end of December, compared to $ 2.7 billion the previous quarter. Long put options on listed shares decreased to $ 1.68 billion from $ 4.69 billion and short call options on listed shares decreased to $ 238 million from $ 1.26 billion worth.
Son said the losses in the asset management arm have increased to a profit of about 100 billion yen since the end of last quarter. But the operations remain in a ‘test drive stage’, he said.
Alibaba, Son’s biggest investment success to date and SoftBank’s biggest asset, dropped its shares by about 20% last quarter amid a downgrade by the Chinese government that led to the planned listing of its associated Ant Group Co. deleted. Founder Jack Ma has disappeared from the public eye. , which made investors uneasy before reappearing last month.
Son said he kept in touch with Mom, without giving specific details about their communication. He said Mom likes to draw and shares his drawings via Son with Son; the SoftBank chief also sketches but does not part of his work. Sun also said he sees the growing monopolistic scrutiny of Ma’s businesses in China as part of the country’s natural evolution.
SoftBank’s own sale of Arm to Nvidia is still working through the approval project. The United Kingdom and the European Union are both preparing to launch investigations into the deal, the Financial Times reported last week. Sun said he remains confident it will get a green light at the end.
SoftBank has also joined the frenzy of the blank-check company with plans for several special-purpose acquisition companies. SVF Investment Corp. raised $ 525 million last month to address sectors such as mobile communications technology, artificial intelligence, robotics, cloud technologies and software. LDH Growth Corp I plans to raise as much as $ 200 million to target Latin American and Spanish markets.
SoftBank filed two more SPACs last week, trying to raise another $ 630 million. The new SoftBank vehicles, SVF Investment Corp. 2 and 3, will target the same diverse areas of technology as the first target, including mobile communications and artificial intelligence, according to documents filed with the Securities and Exchange Commission on Friday.
“Continuous good performance by Vision Fund portfolio companies also helps the prospects of the SPAC because investors can extrapolate management expertise,” Tang told United First Partners. “It underscores their skill in deploying capital.”
SoftBank can see between 10 and 20 public listings a year from its portfolio of 164 startups in three different funds, Son said. According to a typical venture capital fund in the early stages, a third of its bets could pay off, but SoftBank’s portfolio of companies in the late stages should perform better, he said. Even WeWork has received interest in SPAC, he said.
The billionaire showed a tone reminiscent of the days before the WeWork fiasco at the end of 2019. He said the key to making “white egg” investments in golden egg hits was “turbo-charging” companies with ‘overwhelming capital’, were more ambitious goals. and synergies with other portfolio companies.
Sun’s presentation then took a turn for the comic. He flips through an animated slide of a goose marked with an AI revolution text and a line of golden eggs marching from the back to Tchaikovsky’s Nutcracker.
“Investment is a rhythm,” Son said. “But please do not take this too seriously.”
(Updates with Son’s comments on Alibaba, derivatives from the 12th paragraph)
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